Carbon Emission Reduction Scheme Green Paper

The Australian Government has released its Carbon Emission Reduction Scheme Green Paper. Submissions are due by September 10. It discusses how the Australian Government could introduce an emissions trading scheme in order to do something about Australia’s greenhouse gas emissions.

Here is a summary. A 60% cut in emissions by 2050 is still proposed, so Australia will probably remain among the highest per-capita polluters; the trajectories will be determined by 5 to 10 year gateways which will provide certainty for industry but reduce our flexibility if we decide that we need reduce emissions much more quickly; petrol has no extra price signal for the time being; a price cap but no price floor; emissions from our coal exports not mentioned; emissions from livestock not included until at least 2015; emissions from forest degradation and grazeland degradation are not mentioned (except for in developing countries), so logging and burning old growth forests will probably continue to not be measured in Australia’s greenhouse accounting and reporting unless things are changed at the international level. There will be some compensation for low to middle income households but there may not be so much after the big polluters have been catered for.

Because there is a price cap, the emissions cap is not strict, which means that it is not even a real cap and trade scheme. Banking and borrowing should eliminate the need for a price cap anyway.

There will be big handouts to both “emissions-intensive trade exposed industries” (EITEs) and “strongly affected industries”. These handouts will probably be free permits, but could also be cash. Strongly affected industries are industries that emit more than 1500 tonnes carbon dioxide equivalent per million dollars of revenue and include electricity generation (especially from brown coal), waste, and production of natural gas. Strongly affected industries will receive handouts on the basis for their assets while trade exposed industries will receive handouts that are based on their emissions. There is therefore a strong perverse incentive for firms to emit more than 1500 tonnes carbon dioxide equivalent per million dollars of revenue.

The Green Paper does say some good things household energy efficiency opportunities on page 287, this stuff should be a no-brainer by now but it is still a good thing to remind the politicians about. The Green Paper does have some good comments on market failures but it is nowhere near as comprehensive as the Garnaut Review on this issue.

One difference between the Green Paper and the Garnaut Review is that Garnaut proposes that $3 billion or 20% of auction revenue (whichever is greater) should be invested in technology and RD&D, while the only technology emphasis in the green paper is on carbon capture and storage (as assistance to the coal industry). The extra handouts for big polluters effectively mean that cash would not be available for RD&D, and there will be less available for compensating households.

Garnaut has stated that a carbon tax would be much better than a badly designed cap and trade scheme. In my opinion a carbon tax would be much better than the ‘Preferred Positions’ in the Green Paper. While there are many dodgy preferred positions in the green paper, it is probably better than the Task Group on Emissions Trading report and or the National Emissions Trading Taskforce report. It is in many ways similar to these reports (e.g the stuff about gateways) – this is not surprising, many of the people working on those reports would have also been working on the Green Paper.

What is good is that a green paper on a carbon pollution reduction scheme has been released, and there are now opportunities to comment and make submissions and so on. It is a much better process than a the Howard government’s approach of setting up a rent-seeker task group. Unfortunately the preferred policy positions are a bit of a handout bonanza, which suggests that greenhouse polluters still are dominating climate change policy formation in Australia. Some of the recent science suggests that it would be prudent to reduce emissions to somewhere near zero as quickly as practicable, but some of the policy positions in the Green Paper could easily lock Australia into an emissions reduction trajectory that is far too slow.